The PIP lands inside the hold on a DST hotel

$25k a key is a softgoods number with a little casegoods sprinkled on it. Ask for the actual PIP letter from the brand and check the date on it. If it's more than a year old the scope has already moved, and the items that move are the ones with plumbing behind them. Bathroom surrounds, corridor lighting to current spec, lobby reconfiguration if the brand changed its prototype since the last renewal. I've watched a $900k scope on 60 rooms turn into $1.4M because the brand decided the shower valve had to be replaced and that meant opening walls in 60 rooms.

Also ask who holds the contingency. On the ones I've priced the owner carries it and the estimate never includes it.

quill, that's roughly what happened to me at a much smaller scale. My 8 unit needed a roof and a sewer lateral in the same year and I took no distribution for six quarters. The difference is I made that call myself. Here somebody else makes it and mails you a letter.

warrant, the thing I'd want in writing is the notice mechanics. When do unit holders learn the distribution is stopping, and does anyone have to explain why.

Is the hotel on fee land? I've seen interstate exchange pads sitting on 50 year ground leases where the rent resets to a percentage of gross at year 25, and the reset can land within a few years of a PIP. If there's a leasehold, the lender's willingness to write a supplemental loan in year four gets thinner too, because their collateral has a clock on it. Check the title commitment for the fee owner, not the offering summary.

The term mismatch bothers me more than the PIP. Ten year debt, eleven year license, ten year target hold. Whoever buys in year eight or nine is buying an asset that needs a relicense right after they close, and they'll price that. So the exit is really a year six or seven exit, which means the PIP happens two or three years before sale and you never get to earn on it.

A hospital and a distribution park is a real demand story right up until somebody puts a newer flag two exits down and takes the crew business at $12 less. Interstate select service in secondary markets is easy to build and easy to underprice. What does the pipeline within five miles look like?

Three things I'd want before I put money in and I'd want them in the documents, not in an email.

One, the exact escrow release language on the FF&E reserve. Some lender escrows can be drawn for brand mandated work and some can only be drawn for like for like replacement, which is not the same thing as a PIP.

Two, whether 4% is of gross rooms revenue or total revenue. On a limited service box with breakfast and a few meeting rooms that difference is real money over four years.

And whether the sponsor has any obligation, even a soft one, to fund a shortfall, or whether the plan is simply to stop paying you.

PIP means property improvement plan, the list of renovations the brand requires to keep the flag. What I don't follow is why the sponsor's own projection shows a hole. If they know the bill is coming in year four and they know the reserve won't cover it, why would that be in the document at all?

juniper, because the projection is built to show a distribution, and funding the PIP properly means showing a smaller one.

warrant, pull the management agreement while you're in there. On the hotels my company has managed the base fee is a percentage of gross revenue, usually 3 to 4, plus an incentive over a defined NOI hurdle. Gross revenue fees get paid in a bad year. If the manager is an affiliate of the sponsor, they keep earning through the suspension you'd be sitting through. Look for whether that base fee is subordinated to anything at all, and look at the termination on sale provision, because a long unterminatable affiliate contract narrows your buyer pool.

You won't decide year four. The lender will. Read the cash trap and the DSCR covenant, because that's the clause that actually controls whether you get paid.

I came into this room wanting income without a second job and this thread is doing something to my assumptions. Honest question for the people who've held these: how long do suspensions usually run once they start? anchor's point about no obligation to fund is the part I keep rereading.

Your 4% reserve line isn't the only thing in the model that should be growing. Housekeeping wages at my service business are up meaningfully over three years and I'm not competing for the same labor a hotel is. If the sponsor's expense growth is 2.5% flat across the board, ask which line items they actually built up from scratch and which ones got a percentage.

Can someone explain the no capital call part? I get that a partnership can call money. Why can't this one?

ember, the structure is deliberately passive so exchange investors can treat their interest a certain way for tax purposes, and taking active steps like raising new equity or renegotiating leases can jeopardize that treatment. Anyone relying on it needs their own tax advisor to confirm how it applies to them.

warrant, my problem with the whole offering is the price of illiquidity. You're locked in for ten years at a projected 5.75% that can be turned off. Publicly traded lodging REITs pay you to hold a diversified pool with daily liquidity and professional asset management, and they still get punished in downturns. What is the extra 100 or 150 basis points here, if it even exists after the suspension, actually buying you?

One more wrinkle. Brand standards change mid-term. The PIP scheduled at year six of the license gets written against the standards in force when the letter is issued, and if the brand rolls out a new prototype between now and then, the scope you priced isn't the scope you get. I'd ask the sponsor whether they've seen the brand's current prototype and when it was last updated.

hollow, I'd push back a little. New select service supply in secondary markets slowed with construction costs and financing, and the deals that pencil now mostly do so with land contributed cheap. Doesn't mean nothing gets built, it means the box that gets built has to be well located. warrant, ask for a pipeline report for the submarket, STR publishes them, and read the under construction column rather than the planning column. Planning means nothing.

If you decide in year five that you want out, there is a secondary market for these interests and it prices at a real discount to stated value. I've watched interests change hands well under sponsor NAV, and the buyers pricing them are doing exactly the PIP math you just did. Assume no exit before the sponsor's exit and see if you'd still write the check.

Some of these offerings end with the asset going into a REIT's operating partnership and unit holders receiving OP units rather than cash, which changes what the exit looks like and has its own tax treatment that a professional would need to walk you through. If that's contemplated here it should be named in the documents, and if it is, I'd want to know the conversion mechanics before the PIP question, because it changes who eats the year four gap.